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WABCO Holdings Inc. (NYSE:WBC)

Q1 2013 Results Earnings Call

April 25, 2013 9:00 AM ET

Executives

Christian Fife - Vice President, IR and General Auditor

Jacques Esculier - Chairman and CEO

Uli Michel - Chief Financial Officer

Analysts

David Leiker - Baird

Jerry Revich - Goldman Sachs

Jeffrey Hammond - KeyBanc Capital Markets

Tim Denoyer - Wolfe Trahan

Operator

Good day, ladies and gentlemen. And welcome to the WABCO Quarter One 2013 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session with instructions is to follow at that time. (Operator Instructions)

As a reminder, this conference is being recorded. I would now like to turn the call over to your host for today, Mr. Christian Fife, Vice President of Investor Relations and General Auditor. Sir, you may begin.

Christian Fife

Thank you, Ben. Good morning, everyone. And welcome to WABCO’s quarterly conference call. Today, we will present our first quarter 2013 results. With us this morning is Jacques Esculier, our Chairman and CEO; and Uli Michel, our Chief Financial Officer.

As a reminder, this call, webcast and presentation that we are using this morning are available on our website, wabco-auto.com, under the heading WABCO Q1 2013 Results. Replay of this call will be available through May 1st.

Also, as shown in chart two of the presentation, certain forward-looking statements that we’ll make today are based on management’s good faith expectations and beliefs concerning future developments.

As you know, actual results may differ materially from these expectations as a result of many factors, examples of which can be found in our company’s Form 10-Q which was filed with the SEC this morning and our quarterly reports.

Lastly, some of our remarks contain non-GAAP financial measures as defined by the SEC. Reconciliations of the non-GAAP financial measures to the most comparable GAAP measures are attached as an appendix to this presentation and to our press release from this morning, both of which are posted on our website.

I will now turn the call over to Jacques Esculier.

Jacques Esculier

Well, thank you, Christian. Good morning, good afternoon to you all and welcome to our Q1 earnings conference call. Before we jump to the results on page three let me share a couple of headlines. Firstly to our market, actually the environment remains fairly capricious for our industry and as usual pretty complex to predict.

The Q1 market evolution was actually slightly more favorable than what we had anticipated as we entered the year and it’s also slightly up in global production level versus Q4 2012 and that was propelled by a much stronger recovery in South America, as well as larger volumes coming from China.

By contrast, though, the level of production for truck and buses in both Europe and North America has shown in the first quarter a further erosion which amounts to 3% and 4%, respectively, versus the last quarter of 2012. Now that we are in Q2, we can also notice that we see further growth in production levels, particularly this time in Europe and in North America.

The second point I want to highlight is the fact that WABCO’s continuing ability to drive and enhance excellence in execution led in the first quarter to a new record level of productivity above $18 million, as well as a further improvement in our warranty cost driven by a continuous enhancement of the quality of our products and systems in the field, all this leading to another record in gross profit margin reaching 31.1%.

So now looking at the numbers, first quarter sales was actually down slight 0.7% in the local currency, continuing to outperform our market, record performance -- gross profit margin, as I said at 31.1% and operating income margin coming out at 13.6%, leading to a performance EPS which is flat year-over-year at $1.17 per share.

Our free cash flow close to $50 million, returning $52 million to shareholders through the repurchasing of 746,000 shares under our buyback program and as we going to see toward the end of this presentation, we are going to upgrade our full year 2013 guidance. So, again, pretty good quarter in a market that continuous to be fairly sluggish.

Turning to the next page and again looking at a description of -- a qualification of the different channels building our revenues, first revenues going down 0.7% at a performance level versus a year ago and from the three channels starting with the OE channel, actually its down 3% year-over-year, but its up sequentially 11% versus the fourth quarter of last year in a market that sequentially also was actually fairly flattish. After market was up 9% still kind of helped by this program of replacing our competitor’s products, air disk brake product in the field for one of the key European OE.

Sales to JV was down 12% as we will see later the market in North America was down 19% so nice year performing, then looking at the evolution of our sales versus the evolution of the production of truck and buses across all regions starting with European North America.

In both regions we see a very strong outperformance this quarter that was driven mostly by market share gains in ABS in Eastern Europe particularly two of the largest manufacturers, as well as a further penetration of key technologies in North America like our OnGuard collision mitigation system, as well as the automated manual transmission particularly at Volvo.

Also this first quarter revenue levels in Europe and North America benefit from the fact that production will be ramped up sequentially in Q2 versus Q1 and OEs have built up some inventory to prepare for that ramp-up.

South America we are up 45% and obviously a very strong recovery at 47%. We were not able to outperform because actually as it happens in Europe and North America. In South America, OEs had anticipated the very strong gross and had started to build up inventory in the fourth quarter of last year.

Japan, Korea, we outperformed in a market that is coming down actually with an unfavorable impact from the mix because the domestic demand for vehicles in Japan is actually going further down and faster than exports with higher content per vehicle.

China where it performed in a market that was down 6% year-over-year but still 8% sequentially versus Q4 2012. And again we outperformed 6% driving additional market share and penetration of among other ABS and other technologies.

India the market was down 34% year-over-year but 6% versus Q4 2012 and we have seen a 38% decrease in our revenues because of the unfavorable mix of the slowdown in the market in India already highlighted before. Meaning that we see less of these heavy multi-axle trucks built which obviously have higher content per vehicle. So overall for the quarter you see a nice outperformance in a market that continues to erode year-over-year.

I’m going to now let Uli Michel drive you through the details of our financials. Uli?

Uli Michel

Thanks, Jac. Good morning, everyone, and thank you for joining us today. I will take you through our financial results for the first quarter of 2013. Turning to chart five, I will walk you through the details from sales to earnings per share for the first quarter, looking at both our reported and performance numbers.

Performance numbers are adjusted to remove operational streamlining and separation costs, as well as discrete and other tax items. In addition, comparisons to 2012 had been adjusted for currency translational effect.

Our sales in the quarter declined 0.7% in local currencies versus Q1 last year. Sequentially, to the fourth quarter revenue increased 7.1% and our order book grew 12%. The decrease in sales versus last year includes price reductions to customers of 1.1%, which brings us closer to normal levels for our business.

We were able to improve gross profit by 3% and gross profit margin by 110 basis points compared to last year. Our productivity initiatives keep delivering at high level, materials productivity project delivered 5%, which was partially offset by commodity inflation resulting in a net materials productivity of 4.5% for the quarter and the reduction of material costs by $12.7 million.

Conversion productivity was 5.9% for the quarter, saving $6.1 million been conversion costs. We are pleased to report the combined U.S. dollar amount of material and conversion productivity achieved the first quarter represents an all time quarterly record.

Warranty expenses were $4.9 million lower in Q1, 2012, about $2 million were driven by cheaper than expected resolution of certain warranty service activities in Q1 2013, the remainder is reflected of our improved lower warranty experience.

Overhead absorption and other cost had a positive impact on cost of sales in the amount of $4.2 million, while inflation on labor and other factory costs added approximately $3.5 million to our cost of sales. All these items combined result in an all time record performance gross profit margin of 31.1% of sales this quarter.

In operating expenses, we continue to increase spending in research and development activities, and in support of our globalization strategy, which this quarter added $4.2 million of expenses.

Incentive compensation and pension, as anticipated in our last call together added $1.9 million and labor inflation and other costs added $2.4 million. All in all, this result in $8.5 million increase in operating expenses in the first quarter versus the year ago, which 3% an erosion to margin of 141 basis points.

So, altogether, we generated operating income of $87.6 million or 13.6% of sales on a performance basis, representing a drop of 31 basis points on 0.7% sales decline versus Q1 2012.

These 31 basis points drop include 46 basis points unfavorable impact of transactional foreign exchange. So, operationally, we were able to overcome the increases in pension cost driven by the interest rate reduction and the increases in incentive compensation, and still expand our margin by 15 basis points with a small sales decline. This performance is better than the framework we had shared with you.

While we are on the subject of foreign exchange, it is worth mentioning that altogether our performance operating income year-over-year was negatively impacted by $4 million from foreign exchange, $3 million from transactional exposures reducing our margin percentage as just explained and at the current exchange rate levels, we expect the further degradation of margins by about 20 basis points compared to the Q1 level.

The single biggest impact is coming from the rich Japanese yen as shared with you on our last call. There is also $1 million negative impact from translational exposures but this has minimal impact on our margin percentage.

So continuing down to income statement you can see that this quarter equity income was $2.9 million, which is down from a year ago, primarily driven by decrease in North America joint venture of $1.9 million.

The expense to minority shareholders amounted to $2.3 million this quarter, compared to an expense of $2.8 million a year ago. Our performance EBIT this quarter was $88.4 million or margin of 13.7%.

Moving to taxes, you will see that our reported U.S. GAAP tax expense for the quarter was a charge of $8.2 million. In this quarter we benefited from certain discrete tax items such as the U.S. tax law change enacted in January 2013 with retroactive effect to 2012.

Excluding these discrete tax items, our performance tax expense was $13.2 million, which reflects a performance tax rate of 15% inline with the estimate we shared with you on our last call.

After excluding the non-performance items, net income attributable to the company was $74.9 million. With regards to earnings per share, this translates to a $1.17 on a performance basis on par with last year’s performance. In summary, we’re pleased with the levels of profitability for the first quarter.

Turning to chart six, I will now take you through our cash flow for the first quarter of 2013. You can see that working capital increase by $22.9 million in the first quarter. This increase is entirely driven by the increase in business activity.

Our days sales and days payable outstanding have both improved. Our past dues are lower than at the end of Q4 and our inventory turns and days of supply remain stable.

Changes in assets, liabilities and other non-cash items were unfavorable by $10.4 million. Biggest drivers were seasonal items such as payment of our annual incentive compensation plan and certain tax payments. All these resulted in net operating cash flow of $64 million.

Net cash used for purchases of probably plant and equipment totaled $20.4 million for the quarter. We continue to support the growing regions and new business we have won with increased investments. Therefore, free cash flow was $43.6 million or $49.4 million when excluding the streamlining and separation payments made throughout the quarter, resulting in a conversion rate of 66% on our performance net income attributable to the company of $74.9 million.

Under the share buyback plan that we implemented back in June 2011, we repurchased another 746,000 shares in the first quarter at a cost of $52 million. As of the end of Q1, we still have $369 million less under our existing buyback authorization.

For the time being, we intend to keep returning free cash flow back to our shareholders through this buyback program. Overall, we are pleased that in these uncertain market conditions we continue to generate strong cash flow and can use this to enhance shareholder value through the share buyback.

I would now like to turn it back over to Jack, who will highlight the current market dynamics. Jack?

Jacques Esculier

Thank you, Uli. So moving to page seven, as we do every quarter, we are going to give you an update on the forecast of the market evolution for each of our regions starting with Europe. New registration for heavy trucks in Europe for the first two months of the year was down 16%, down 18% in Western Europe and 4% in Easter Europe.

The production of truck and bus was down for the full quarter -- was down 10% year-over-year and down 3% sequentially versus the last quarter of 2013. Actually, we have tightened our bracket of production outlook from flat to minus 5 to flat to minus 3 because of a slightly better performance in Q1 and also because of a nice upturn that we see in the production level for Q2.

Now, the Q1 we see it actually as the lowest quarter in terms of production levels for the year, meaning that if we take the Q1 run rate and carried it through the entire year, we would be actually reaching a 10% year-over-year production decline. So we expect Q2 to actually stop catching up and the year ending up a little bit higher.

Moving to the U.S., production in Q1 was down 19% versus a year ago and 4% sequentially. We have actually worsened or downgraded the outlook for the U.S. from minus 3 to minus 8 to a minus 5 to minus 10 bracket. We still see Q1 as the lowest level of production for the year, again looking at Q1 run rate across the year would mean that the year-over-year production would be a 15% decline versus last year.

Moving to China, first quarter, China produced almost 300,000 trucks, which is down on year-over-year, but up 8% versus the last quarter of 2012. For the full year, we see an outlook flat to minus 5%. Q1 actually in China, we see it at the highest level of production, meaning that if we carry it, we’re going to be excessive in the overall production versus what we see. So we should see a further decline in the coming quarters.

Moving to India, truck and bus production was down 34% year-over-year but still at 6% versus Q4, 2012. We maintain a production outlook flat to minus 5%. Q1 in India is actually the lowest quarter in our view of the year. And, again if we would carry that run rate across the year, we would end up 15% year-over-year down in production. So we expect actually every quarter an improvement from where we are today.

Turning to page eight, Japan and Korea, Q1 ‘13 was down 14% year-over-year and down 11% sequentially. As I said, we see a stronger decline for export vehicles which is unfavorable for us.

And we expect production to actually fall in the bracket of minus 3 to minus 8, which is downgrading the former estimate of 0 to 5%. And again, Q1 run rate, if we would carried across the year, we would end up with the 10% year-over-year production decline. So Q1 was a low quarter in production.

Moving to Brazil, a very strong 47% increase in production versus a year ago and up 25% versus Q4 2012. We think that truck and bus production would end up in that bracket of 12% to 17% and we keep that bracket. Actually, we see Q1 extremely strong, as I’ve reported stronger than anticipated. We don’t see Q2 much higher than Q1 but we see H2 actually significantly lower than H1, under the assumption that the government discontinues the incentive program in June as it is planned now.

Going to aftermarket as I said, we ended up Q1 with a 9% increase in revenues, helped by this campaign, which represent about 5% of growth. We should end up 2013 up 5%. Now, it has to be noticed that because the replacement program started in the second quarter last year, when we would compare year-over-year in the second half of 2013 versus the second half of 2012, given the fact that the program will be stopped in June 2013. We probably should not expect much of a growth in H2 2012.

Finally, looking at trailer markets, we are down 6% versus 2012, but up 7% sequentially. Our outlook is still flat to minus 5% with Western Europe carrying a stronger decrease. And if we would carry the run rate of the first quarter across the Europe, we would end up with 5% year-over-year production decline.

Moving to next page, and as we do every quarter, we are going to highlight the few strategic achievements along our pillars. First, in globalization, the MAXX U.S. breakthrough single piston air disc brakes, is now reality in the U.S. market. It has been put in production to equip the Daimler North America trucks.

We have also won various prestigious award from Hino, which is the Toyota’s Commercial Vehicle division, recognizing the performance and technology that WABCO brings to them. Very new technology, we have introduced, our next generation of collision mitigation system in the U.S. under this OnGuard branding. It has already been implemented in four of the major truck manufacturers in North America and remains by far the most, the preferred collision mitigation system in this market.

We have also introduced the air suspension -- the electronically controlled air suspension in North America and won a very nice award for it. And this technology allows to manufacture trucks with only one drive axle instead of two, saving car, saving weight, saving fuel consumptions.

Finally, we have produced this ABS hydraulic system including ESCsmart, the stability control device we introduced to the market. This hydraulic ABS system including ESC is a breakthrough in the global market. And this will support what is expected to be a regulation mandating ESC by around 2016 in the U.S.

Finally around execution, we won for the first time actually a Daimler Supplier Award for 2012, recognizing our performance and technology and service level in electronics category. We are very proud of it. And finally as Uli shared with you, we have reached some record level of productivity both in gross material productivity and conversion productivity.

Moving to the next page, we are going to share with you some upgrades in our guidance. But first let me give you the basic rationale of why we are updating the guidance and how we are doing it.

First, as I said, we ended up Q1 slightly better than anticipated. And we see Q2 actually also slightly stronger as compared to what we had obviously forecasted. And we essentially held to our guidance for the second half of the year in line with the global economic forecast.

Now, we are fairly confident to tighten our guidance around the midpoint in the range. So looking at sales growth, we went from a 2% to 7% to a 3% to 7% expected growth in local currency, leading to $2.6 billion to $2.7 billion obviously integrating in adjustments in the exchange rates.

Performance margin, we enhanced from a 12.3 to 13.3 bracket to 12.7 to 13.3 bracket. And we moved the brackets for the expected EPS, performance EPS from 4.3 to 4.8 to a $4.45 to $4.85 per share, maintaining our commitment on free cash flow conversion between 80% and 90% in maintaining the key assumption that we had shared with you in the first -- in the previous call.

Now, I want to also highlight that our plan is not back-end loaded in market assumption. Actually to the contrary, we anticipate actually the production of truck and buses in the second half of the year to be lower than in the first half, mostly driven by the seasonally low and weak Q3 driven by the vacation particularly in Europe.

However, when you look at the year-over-year quarterly growth comparison because H2 2012 was significantly weaker than H1 2012, when we compare H2 2013, actually we’re going to see much stronger growth percentage wise year-over-year in Q3, Q4 than we have seen in Q1 and anticipate in Q2.

Moving to the last page, in summary, we continued to outperform a market that again is fairly weak and erratic. We continued to drive our excellence across our execution to return good quality earnings. And we are generated -- we continue to generate good strong cash flow that will return to shareowners through our buyback program.

And we upgraded accordingly our 2013 guidance. But what I want to highlights you also is that as we have not back-loaded our plan in market assumption. This means that any improvement in the economy or any upturn that we would see in the industry will flow through to have actually an immediate further positive impact on WABCO’s earnings performance.

So that concludes our presentation and I would like to open the Q&A session at this time.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of David Leiker from Baird. Your line is open. Please go ahead.

David Leiker - Baird

Good afternoon, everyone.

Uli Michel

Good morning, David.

Jacques Esculier

Good morning, David.

David Leiker - Baird

Thanks. I guess, two things that I wanted to focus on. First on the income statement, when you look at productivity performance and the material cost performance, can you talk a little bit of how you are able to accomplish that and how much opportunity, excellent performance there over the quarters and how long you can continue to do that?

Jacques Esculier

David. Yeah. I mean, again, in terms of dollars it’s again breaking a record. In terms of percentage, it’s very much in line with what we have been delivering quarter-after-quarter. A 5% gross productivity in material that obviously, we continue to drive through different levels, including continuous negotiation with our suppliers, transfer from high-cost countries to best-cost countries of our supply base and by the redesign of our products to make them less expensive to manufacture. All this continues to feed that pipeline of productivity. And very frankly, it’s must and it’s extremely strongly driven across our organization to maintain that level of productivity and material quarter after quarter, year after year.

The second one which is related to bringing the efficiency in our factories that’s more the conversion productivity. Actually, we are making some progress here. We are making some significant continuous improvement and enhancement across our factories. And actually I would even expect that level of productivity to maybe incrementally increase in the coming years.

I think we have proven that our supply chain and our factories are capable of delivering increasing level of quality. Together with good level of quality usually comes good level of cost and productivity and that’s why I feel confident that our factories will be at least able to sustain, and maybe even further enhance this level of productivity in the coming quarters and years.

David Leiker - Baird

Okay. Great. And then the second item here. If we look at the SG&A lines and the products engineering that I’m looking at just right up the income statement. Those are up year-over-year. Given the revenue, I expect most of that is investment in new products and technology. Is there an opportunity to further leverage those lines than you already have?

Jacques Esculier

Actually, David, we are adding continuously resources and expenses to the technology pipeline. We certainly do not stop. And we have proven that year-after-year, we do not stop the company from investments in new products, new technologies. We keep hiring and enhancing the team across the globe. We obviously leverage whenever we can, the best-cost countries meaning that we can add more resources at the same cost. But again, you know that we have significantly increased the number of engineers in the last two, three years and we continue to drive that path.

David Leiker - Baird

Great. Thank you very much. Fantastic quarter.

Jacques Esculier

Thanks, David.

Uli Michel

Thanks, David.

Operator

Thank you. Our next question comes from the line of Jerry Revich from Goldman Sachs. Your line is open. Please go ahead.

Jerry Revich - Goldman Sachs

Good morning and good afternoon.

Jacques Esculier

Good morning.

Uli Michel

Good morning, Jerry.

Jerry Revich - Goldman Sachs

Jacques, on the air compressor contract award that you received from the two European OEMs, can you just talk about the timing of the production ramp, how much of it is tied to the EURO VI product launch, or do you expect to see the benefits sooner?

Jacques Esculier

No, the biggest thing we saw this year is probably EURO VI program. These contracts have been signed couple of years ago, but we are talking about entering in production this year actually. So it’s going to be a progressive ramp-up. Obviously, the full production will be linked to the full launch of EURO VI, but ahead of the full launch towards the end of the year. We see already some demand building up.

Jerry Revich - Goldman Sachs

And it was nice to see the increased availability of WABCO products on Navistar platforms at Mid-America. I’m wondering if you could talk about the timing of the production ramp and do you expect to be at a full penetration rate by the end of this year, or how do you see that progressing?

Jacques Esculier

Well, there are different factors. First, we have to be homologated on all platforms and Navistar is working at it. But as you know, they also have other conflicting parties at this point. The second thing is obviously we have to work with the fleets to pull our system, but it’s already a major achievement to have been put as a standard on their price list and I think we are going to still see some very, very nice ramp up in the revenues from that opportunity in 2013.

Jerry Revich - Goldman Sachs

Okay. And lastly, Jacques, can you give us an update on the core products business particularly within vacuum pumps. How is the production tracking and when do you expect that to ramp up based on the latest you are hearing from your biggest customer there?

Jacques Esculier

We think that actually the vacuum pumps will be full year about 20 plus percent up, year-over-year. Q1 was actually very flattish because there have been some delays in some programs from the customers in the U.S. I think Q2 will start to crank up some nice growth in vacuum pumps. I mean, already potentially in the 20 plus percent and again for the year we should see 20 plus.

Jerry Revich - Goldman Sachs

Thank you very much.

Operator

Thank you. Our next question comes from the line of Jeff Hammond of KeyBanc Capital Markets. Your line is open. Please go ahead.

Jeffrey Hammond - KeyBanc Capital Markets

Hey, guys. Just kind of on the production kind of first half, second half. It seems like you were pointing to lower production in Brazil and China, second half versus first half. And I’m just wondering if you’re hearing some, specifically from your customers or that’s pointing into that. And then just, I guess on an overall basis, it would seem that even with the seasonal vacations in Q3 with Europe, the Europe production would be ramping just given any kind of level of pre-buy activity?

Jacques Esculier

Hi, Jeff. First, good morning. And then -- first, let’s start with China that is the easier one to address because it’s the most complex one to justify. Very frankly, the first quarter ramp-up I think has been excessive, right. You look at -- again, 8% sequential increase versus Q4 and we see some inventory being build up. It seems that the manufacturers over there just hope and thought that demand would increase and wanted to have everything in place in their pipeline, to not miss any drop of that increase.

And we believe they have been some kind of a phenomenon where all would be in that first quarter, that actually -- sequentially, we’re going to pay for in the second quarter because we see an erosion Q2 versus Q1 of about 9%, 10%, right. And then, we don’t think that they will be much of a recovery in the second half. Actually to the contrary, we kind of see a further erosion.

Our assumption is China should end up in that 1 million plus, but not much plus type of volume, which we think is reasonable given the GDP growth forecast and everything that we see and we hear from our customers at this point. I was there, not long ago and very frankly company people kind of expressed a certain level of concern to plan for any growth this year, so they would kind of probably see it flattish at best. Right?

Jeffrey Hammond - KeyBanc Capital Markets

Thank you.

Jacques Esculier

Brazil, Jeff is a very complicated situation because right now sequentially, we see H2 double-digit down versus H1 because we really believe that the very, very significant ramp up that we have seen in Q1, that is way ahead of what we had anticipated that will stay at this level in Q2 we believe.

We think that was excessive, but we’re going to have again to pay for it in the second half. And that’s why we kind of prudently believe that there will be a drop in demand, except if the government again expands and extends the incentive program that is currently in place.

And then Europe, well again, Europe GDP growth has been downgraded since the last call we had. Right now, it seems to be kind of a small 0.3%, year-over-year. So, I don’t think there is any really hope for major turnaround of the situation we have seen lately. We believe though that the second quarter may be really a nice ramp up versus first quarter, still down year-over-year though. But we don’t see how the second half could grow further up after a nice good strong ramp-up in the second quarter.

So, overall that’s what we kind of feel like yeah, we are going to have a nice second quarter. And then its going to kind of linger or maybe further erode from there, particularly taking into account this third quarter that is usually much weaker than the others in Europe.

Jeffrey Hammond - KeyBanc Capital Markets

Okay. And then just finally on the outgrowth -- I mean, after kind of a more subdued outgrowth in ‘12 that’s reaccelerated. I’m just wondering if there is any anomalies within 1Q that may be don’t persist, or do we start to see just more consistent higher run rate of outgrowth?

Jacques Esculier

We maintain that we are going to -- probably are growing that 5-ish plus percent this year. Again, as I highlighted the out growth that we have seen in Q1 for both U.S. and Europe are unusual and not sustainable most probably. And that’s why I probably -- I kind of referred to this ramp-up of inventories that our OEs anticipating the ramp-up of their production level in Q2 and that benefited our Q1 revenues.

Jeffrey Hammond - KeyBanc Capital Markets

Okay. Great job once again, guys.

C

Okay. Thank you.

Operator

Thank you. (Operator Instructions) Our next question comes from the line of Tim Denoyer from Wolfe Trahan. Your line is open. Please go ahead.

Jacques Esculier

Good morning, Tim.

Tim Denoyer - Wolfe Trahan

Good afternoon. A couple of questions, especially on Brazil a little bit further. I know you’ve underperformed just a little bit in terms of the production rate, obviously is a very big production rate. But with the ABS rate regulation starting this year, have there been any hiccups in that implementation?

I think it was must be 40% of the market and I may have missed this, but I thought one of your customers had said, this week that the Brazilian incentives had been extended through the end of the year. Is your impression that they are expiring in July at this point? I just wanted to confirm that.

Jacques Esculier

Well, thank you for the good news, Tim, because to be fair, we have not heard it yet in Brussels. But yeah, it would be good news. We had heard so far that this program would potentially end up at the end of June. So now, related to ABS. Yeah, ABS is being rolled out progressively in Brazil. We have a fair share of the market as you can anticipate. But again, we had nicely outperformed the market in Q4.

And referring back to what I said for Europe and North America, a head of the increase in Q2, we -- I think a lot of nice inventory was already build up in Q4 to support that ramp-up in Q1. So that’s why we have not outperformed this 47% production level, but we were just short of it at 45%. But it does not mean that we are losing any opportunity or wasting any market share in this business over there.

Tim Denoyer - Wolfe Trahan

Okay. Great. And just another question on Europe in terms of your outperformance there. Can you give us just a rough sense of how much of that I guess is about 7 percentage points of outperformance in Europe? How much of that was the market share that you’ve talked about with couple of OEMs and just general content growth versus restocking?

Jacques Esculier

Listen, I don’t have the exact numbers, Tim. The only thing I can tell you is, usually Europe we outperformed like a 2% to 3%. I think we had some very, very nice wins in Russia related to this ABS, the two leading manufacturers, the two leading OE manufacturers. That consummated very nicely. But again, I think we should have expected something in that 2% to 3% to 4% range maybe. Obviously, we were higher and the difference I would say is just anticipating and supporting this ramp up at the OE.

Tim Denoyer - Wolfe Trahan

Okay. Great. Thanks. And one quick -- last quick one on -- coming back to North America. I know in your comments you said you are available now on all four truck OEMs in North America for OnGuard. I was under the impression that you needed your ABS systems to use OnGuard but I wasn’t aware that your -- that you had your ABS with Paccar and Navistar. Is that a fair read?

Jacques Esculier

Yeah. Navistar -- as I said, we are standard now for several of their trucks and we are going to get across the board standard. Paccar was requested by some of the fleets to integrate our ABS in their trucks to support their request for OnGuard, because specifically they made a condition I understand to have the opportunity to install our OnGuard system onboard their truck, necessitating the homologation and acceptance of our ABS system as well.

Tim Denoyer - Wolfe Trahan

Very good. Thank you very much.

Jacques Esculier

Okay. Thanks a lot.

Operator

Thank you. With no further questions in queue, I’d like to turn the conference back over to Mr. Jacques Esculier for any closing remark.

Jacques Esculier

Well, I just want to thank you for your continuous interest in WABCO. Wish you all the best and talk to you in July. Thanks. Have a good day. Bye-bye.

Operator

Ladies and gentlemen, thank you for your participation in today’s conference. This does conclude the program and you may all disconnect. Have a great rest of the day.

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